Case 2:19-cv-00709-DAK Document 137 Filed 09/20/21 PageID.3234 Page 1 of 32
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` ______________________________________________________________________________
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`IN THE UNITED STATES DISTRICT COURT
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`FOR THE DISTRICT OF UTAH
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`IN RE OVERSTOCK SECURITIES
`LITIGATION
`____________________________________
`
`THE MANGROVE PARTNERS
`MASTER FUND, LTD.,
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`MEMORANDUM DECISION
`AND ORDER
`
`Case No. 2:19-CV-709-DAK-DAO
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`Lead Plaintiff,
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`Judge Dale A. Kimball
`
`v.
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`Magistrate Judge Daphne A. Oberg
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`OVERSTOCK .COM, INC., PATRICK
`M. BYRNE, GREGORY J. IVERSON,
`and DAVID J. NIELSEN,
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`Defendants.
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`
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`This matter is before the court on Defendants Overstock.com, Inc., Gregory J. Iverson, and
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`David J. Nielsen’s (“Overstock Defendants”) Motion to Dismiss Plaintiff’s Amended Consolidated
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`Complaint [ECF No. 125], and Defendant Patrick M. Byrne’s Motion to Dismiss Plaintiff’s
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`Amended Consolidated Complaint [ECF No. 124]. On June 18, 2021, the court held a hearing on
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`the motions by Zoom video conferencing because of the Covid-19 pandemic. Michael B.
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`Eisenkraft, Laura H. Posner, Daniel H. Silverman, Molly J. Bowen, Joseph D. Watkins, and Keith
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`M. Woodwell represented Plaintiff. John C. Dwyer, Jessica Valenzuela Santamaria, Jeffrey D.
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`Lombard, and Erik A. Christiansen represented the Overstock Defendants. Robert N. Driscoll,
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`Alfred D. Carry, Holly Stein Sollod, and Cory A. Talbot represented Defendant Patrick M. Byrne.
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`Having fully considered the parties’ written submissions, oral arguments, and the law and facts
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`Case 2:19-cv-00709-DAK Document 137 Filed 09/20/21 PageID.3235 Page 2 of 32
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`related to the motion, the court enters the following Memorandum Decision and Order.
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`BACKGROUND
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`This is the second round of motions to dismiss in a securities fraud class action brought by
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`Lead Plaintiff, The Mangrove Partners Master Fund, Ltd., on behalf of persons who purchased
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`Overstock common stock between May 9, 2019, and November 12, 2019. Plaintiff alleges that
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`Defendants made false statements about Overstock’s financial projections for 2019 and engineered a
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`scheme to issue a digital dividend that purportedly caused an artificial squeeze on short sellers. The
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`court dismissed the claims in a previous decision, but allowed Plaintiff to amend its Consolidated
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`Complaint based on new evidence.
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`A. Initial Allegations
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`As explained in the court’s prior decision, Overstock is an online retailer of home goods. In
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`2014, Overstock began working on initiatives to develop blockchain technologies, which it now
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`pursues through its wholly-owned subsidiary Medici Ventures, Inc. Medici conducts the majority of
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`its business through a subsidiary, tZERO Group, Inc., which is focused on developing and
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`supporting the issuance of digital securities. Through tZERO, Overstock sought to create an
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`alternative trading platform where the investing public could purchase and trade digital securities.
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`However, during the class period, Overstock’s retail business generated nearly all of its revenues.
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`Dr. Patrick Byrne is the founder and former CEO and director of Overstock. He resigned
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`from Overstock on August 22, 2019, during the middle of the class period. Gregory J. Iverson is
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`Overstock’s former CFO. He resigned from Overstock on September 17, 2019, during the class
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`period. David J. Nielsen became Overstock’s retail division President on May, 9, 2019, the
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`beginning of the class period, and served in that role throughout the class period.
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`Lead Plaintiff, The Mangrove Partners, is an institutional investor that purchased Overstock
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`common stock during the class period. Plaintiff is a well-known short seller, and Dr. Byrne publicly
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`denounced short sellers for artificially depressing Overstock’s share price. Short sellers borrow
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`stock from a brokerage (and pay interest while the shares are outstanding), sell those borrowed
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`shares at a time they believe the company’s market price is high, purchase shares back when they
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`believe the stock price is low, and return those newly purchased shares to the brokerage. If their
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`prediction is right, they make a profit. If their prediction is wrong and the stock price rises, they
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`incur a loss. If a dividend is issued on stock a short seller has borrowed, the short seller has a
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`contractual obligation to pay that dividend to the lender. If the short seller cannot pay the dividend,
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`the only way to avoid breaching its contractual obligations is to “close out” or “cover” its short
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`position by purchasing the shorted stock on the open market.
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`Before the start of the class period at issue in this case, Plaintiff shorted more than 2.5
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`million Overstock shares. Plaintiff continued shorting Overstock shares throughout the class period.
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`In fact, Plaintiff’s only purchases during the class period were pursuant to preexisting contractual
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`obligations owed to lenders whose stock Plaintiff had previously borrowed to sell short.
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`During the period leading up to the class period, Overstock’s retail division had been
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`struggling to regain market share from its main competitor, Wayfair. In early 2018, it cut prices and
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`increased advertising spending, but its efforts to regain market share failed. In the second half of
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`2018, Overstock reversed course and began focusing on value and running the company profitably
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`by decreasing customer acquisition costs and increasing customer retention.
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`Two months before the start of the class period, on March 18, 2019, Overstock held its
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`earnings call and disclosed, among other things, that the retail division ended the fourth quarter of
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`2018 with a $16.9 million “Adjusted EBITDA” loss. Adjusted EBITDA is a non-GAAP financial
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`measure that approximates cash flow. However, Overstock also announced that it expected the
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`retail division to be profitable in 2019 and provided full year 2019 guidance for Retail Adjusted
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`EBITDA of $10 million.
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`Overstock explained that the positive guidance was due to a number of factors: (1) retail
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`contribution was $33 million in the fourth quarter of 2018 and was expected to increase to $37
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`million in the first quarter of 2019; (2) customer retention was up 36% year-over-year; (3)
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`Overstock had already cut 25% of its general and administrative expenses; and (4) after 16 months
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`of search optimization deterioration, Overstock posted six consecutive months of ranking
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`improvements. Plaintiff does not allege that any of these statements are false or misleading.
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`On May 9, 2009, the first day of the class period, Overstock reported results for the first
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`quarter of 2019. The Retail Adjusted EBITDA improved $14.4 million from the prior quarter,
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`ending with a loss of $2.5 million. Overstock attributed the retail division’s improved performance
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`to its continued focus on contribution, expense structure optimization, and improvements in search
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`engine rankings. Based on that performance, and its estimate that contribution from the retail
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`division would increase from the original estimate of between $160-185 million, Overstock raised
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`its full-year Adjusted EBITDA retail guidance by the same amount, $5 million. The revision of the
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`retail guidance is the first allegedly false statement identified in the Consolidated Complaint.
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`On July 15, 2019, in a Form 8-K filed with the SEC, Overstock disclosed that, based on
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`favorable second quarter results, it was raising retail guidance again by $2.5 million.
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`On August 8, 2019, Overstock reported its second quarter results. As projected the retail
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`division returned to profitability, generating a positive $1.6 million in Adjusted EBITDA. This was
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`the first time since the second quarter of 2017 that the retail division had posted a positive Adjusted
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`EBITDA. Because the second quarter of the year is traditionally Overstock’s softest quarter of the
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`year, Overstock reconfirmed the retail guidance it provided in July. Overstock also disclosed that its
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`general and administrative expenses in the second quarter of 2019 were higher than the second
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`quarter of 2018, in part, due to a $722,000 increase in corporate insurance costs.
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`Plaintiff alleges that Overstock failed to announce that Overstock could not obtain insurance
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`coverage going forward for Byrne or any of its other officers or directors due to Byrne’s increasingly
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`erratic behavior. Plaintiff asserts that both Byrne and Iverson knew this.
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`On September 23, 2019, as its third quarter was nearing a close, Overstock issued a press
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`release disclosing that the retail division’s third quarter results were expected to approximately
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`“break even.” Because the full year guidance previously “envisioned significant positive EBITDA
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`for Q3,” which did not materialize, Overstock stated that it would be updating the full-year guidance
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`after the end of the third quarter. Overstock identified five factors that would drive the company’s
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`revised retail guidance: increased tariffs, increased freight costs, increased D&O insurance
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`premiums, waning consumer confidence, and slower conversion of search traffic. Overstock also
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`revealed that Defendant Iverson had resigned on September 17, 2020, with no notice and effective
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`immediately. Following the September 23 press release, Overstock’s stock dropped by
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`approximately 25%.
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`With respect to Plaintiff’s other claim, on July 30, 2019, Overstock announced that it would
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`issue a dividend of one share of Digital Voting Series A-1 Preferred Stock for every 10 shares of
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`common or preferred stock outstanding. The record date for the Dividend would be September 23,
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`2019, and the distribution date would be November 15, 2019. Overstock explained that the
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`Dividend would not be, and was not required to be, registered under the Securities Act of 1933.
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`Consequently, the Dividend could not be traded until the shares became eligible for resale under
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`Rule 14 of the Securities Act, approximately 6 months after issuance.
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`Once eligible for resale, the shares would be traded through a brokerage account established
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`with Dinosaur Financial Group LLC (“Dino”) on PRO Securities ATS, a SEC-registered alternative
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`trading system operated by PRO Securities, a tZERO subsidiary. The estimated 40,000 Overstock
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`stockholders on the Dividend record date would be issued approximately 3.7 million Series A-1
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`Preferred shares to trade on the tZERO platform.
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`Although Overstock stated that the Dividend was important for adoption of the tZERO
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`platform and to bring broker-dealers into the broader tZERO ecosystem, Plaintiff claims that
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`Overstock’s stated goal was pretextual. Plaintiff contends that the dividend was announced shortly
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`after Dr. Byrne learned that his relationship with a Russian spy was about to become public and he
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`might need to leave the company. Plaintiff believes that the dividend’s short squeeze was intended
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`to increase the price of Overstock shares at the time of Dr. Byrne’s departure.
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`Within hours of its announcement, several market-focused publications recognized the
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`practical effect of the Dividend on short sellers. RealMoney published an article that same day
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`stating, “Simply put: the digital shares are locked-up. They can’t be sold for a period of time to be
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`determined, but likely six months. There’s the rub. If the digital shares can’t be sold, how can they
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`be sold short? Logic tells me they can’t.” The article then described the Dividend as having the
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`potential to influence Overstock’s stock price as “an artificial short-squeeze” because Overstock
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`was “essentially telling shorts they need to buy shares on the NASDAQ to either avoid paying out
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`the digital dividend or as a hedge after they’ve paid the digital dividend.” Two days later,
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`Bloomberg published an opinion article stating that the Dividend “punishes actual short sellers of
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`Overstock’s regular stock right now . . . by adding technical difficulties to maintaining the short.”
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`Similar commentary continued for months.
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`Plaintiff asserts that Overstock failed to prepare the necessary infrastructure for the
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`dividend’s issuance. Plaintiff claims that this failure indicates that Overstock never intended for the
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`dividend to be issued in the manner disclosed to investors. A representative from Dinosaur
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`Financial stated that the dividend came out of left field without sufficient information or
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`preparation.
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`On August 22, 2019, Byrne resigned from Overstock and left the country. Less than three
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`weeks later, the squeeze began to abate as some brokerages agreed to accept cash in place of the
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`dividend and alleviated the short sellers’ need to cover their positions. Between September 16 and
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`18, 2019, Byrne sold his entire remaining common stock in Overstock, selling over 4.7 million
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`shares for $90 million. From abroad, Byrne admitted that he sold his remaining common stock after
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`waiting for volume to pick up and stated that he invested the proceeds of his sales in precious metals
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`and crypto-currencies to protect it from retaliation from the “Deep State.”.
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`On September 18, 2019, Overstock officially ended the short squeeze by announcing in a
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`Form 8-K filed that same day that the dividend’s record date would be postponed and that
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`restrictions would be loosened so that the dividend would be freely tradeable immediately. This
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`announcement alleviated short sellers’ need to purchase to cover. Plaintiff alleges that this shows
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`that the lock-up feature of the dividend was a manipulative contrivance rather than a legitimate
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`business maneuver.
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`The SEC launched an investigation into Overstock’s and its officers’ activities. On October
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`7, 2019, the SEC subpoenaed documents relating to the dividend, potential insider trading by
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`Overstock’s officers, and communications with Byrne. In December 2019, the SEC issued
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`subpoenas relating to tZERO, insider trading policies, and employment and consulting agreements.
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`Lead Plaintiff’s Amended Consolidated Complaint (“AC”) continues to assert claims under
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`Sections 10(b), 20(a), and 20A of the Exchange Act. Count 1 alleges that all Defendants violated
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`Section 10(b) of the Exchange Act and Rule 10b-5(b), promulgated thereunder, by making false and
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`misleading statements in May, July, and August 2019. Count 2 alleges a claim for market
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`manipulation under Section 10(b) and Rules 10b-5(a) and (c) against Overstock, Byrne, and Iverson.
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`Count 3 alleges that the Individual Defendants are “controlling persons” under Section 20(a) of the
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`Exchange Act. Count 4 alleges an insider trading claim against Defendant Byrne under Section 20A
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`of the Exchange Act.
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`Essentially, Plaintiff contends that Defendants engaged in a scheme to issue a locked-up
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`dividend they knew would cause a short squeeze, artificially spike Overstock’s stock price, and
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`force short sellers of Overstock stock to cover their positions at inflated prices. According to
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`Plaintiff, Defendants compounded this fraud by overstating Overstock’s annual retail
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`guidance–misleadingly bolstering investor confidence in its retail segment–and by concealing
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`Overstock’s inability to obtain D & O insurance. Moreover, Byrne allegedly took advantage of the
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`artificially high stock price to sell his stake of Overstock common stock for $100 million in profits.
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`B. New Allegations
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`Plaintiff’s Amended Consolidated Complaint (“AC”) includes allegations from a new
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`confidential witness, CW#0, who is described as a senior-level executive who participated in the
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`2019 planning process with the individual Defendants. Plaintiff does not provide CW#0’s job title,
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`job description, or dates of employment though. CW#0 claims that Overstock’s base 2019 Plan was
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`misleading because it was not the lower, conservative end of the guidance range, which was set in
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`consultation with a team of consultants from Bain & Company. That range was $145 to $165
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`million. Overstock’s final plan was set at $160 million, which corresponded to a $10 million
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`adjusted EBITDA Retail guidance. The final plan and retail guidance was set two months before
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`the class period began. CW#0 claims that about two weeks after Overstock reaffirmed the adjusted
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`EBITDA Retail guidance on August 8, 2019, a revised outlook was presented to the executive
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`leadership that purportedly made clear that the retail adjusted EBITDA would not be achieved. A
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`few weeks later, on September 23, 2019, Overstock issued its “corrective disclosure” regarding the
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`expected disappointing third quarter results. CW#0 also claims that Overstock’s search engine
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`optimization improvements were “largely disconnected from improvements in revenue and
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`contribution.”
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`In addition, Plaintiff’s AC provides job descriptions for the two prior confidential witnesses
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`that were not in the precious complaint. CW#1 was a “production design lead,” whose job
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`responsibilities were to “work with retail partners who purchased advertisement space from
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`Overstock to design and build promotions” and “ensure the accuracy of the promotions and oversee
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`their execution.” The AC corrects CW#1's dates of employment with Overstock. CW#1 left
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`Overstock in January 2019, four months before the beginning of the class period. The prior
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`complaint had stated that CW#1 was employed at Overstock until 2020.
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`Plaintiff also adds allegations in the AC identifying CW#2 as a “front-end developer,” who
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`was responsible for developing code for Overstock’s retail homepage website and ensuring that
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`content designed by Overstock’s creative teams appeared correctly on the website. CW#2 worked
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`on the team responsible for the technical side of Overstock’s website and implemented measures to
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`measure and improve the website’s search engine optimization. CW#2 stated that there was never a
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`big improvement in SEO and Overstock’s website was not updated. CW#2 left Overstock in July
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`2019, in the middle of the Class Period.
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`Plaintiff’s AC also includes additional allegations about Byrne’s alleged vendetta against
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`short sellers. The AC also alleges, based on Byrne’s statements and Overstock’s actions after his
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`departure, that the locked up feature of the digital dividend had no business purpose, was illegal,
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`and implemented for the sole, undisclosed purpose of creating a short squeeze that would harm
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`short sellers and allow Byrne to liquidate his Overstock common shares at artificially high prices.
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`DISCUSSION
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`Defendants’ Motions to Dismiss Plaintiff’s Amended Consolidated Complaint
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`The Overstock Defendants and Defendant Byrne move to dismiss Plaintiff’s AC, asserting
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`that the AC fails to state plausible claims under the heightened standard applicable to securities
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`fraud claims. “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
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`accepted as true, to state a claim for relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S.
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`662, 678 (2009). A claim for fraud must “state with particularity the circumstances constituting
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`fraud or mistake.” Fed. R. Civ. P. 9(b). In the securities fraud context, however, the pleading
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`standard “is more strict than that of Rule 9(b).” In re Qwest Communications, Int’l, Inc., 396 F.
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`Supp.2d 1178, 1188 (D. Colo. 2004) (citing City of Phila. v. Fleming Cos., Inc., 264 F.3d 1245,
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`1258 (10th Cir. 2001)). A securities fraud case has the “most stringent pleading requirement in
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`American civil law.” McCauley v. City of Chi, 671 F.3d 611, 625 (7th Cir. 2011) (citing Tellabs,
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`Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007)).
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`Securities fraud claims are subject to the Private Securities Litigation Reform Act of 1995
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`(“PSLRA”), which requires a plaintiff “to state with particularity both the facts constituting the
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`alleged violation, and the facts evidencing scienter.” Kessman v. Myriad Genetics, Inc., 2019 WL
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`1330363, at *3 (D. Utah March 25, 2019). The PSLRA imposes a heightened pleading requirement
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`for alleging the intent to defraud–or scienter– with particularized facts that give rise to an inference
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`that is at least as cogent as any competing, nonculpable explanations for a defendant’s conduct.
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`Tellabs, 551 U.S. at 314. The inference of scienter “must be more than reasonable or
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`permissible–it must be cogent and compelling.” Anderson v. Spirit Aerosystems Holdings, Inc., 827
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`F.3d 1229, 1236-37 (10th Cir. 2016).
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`A. Section 10(b) Claims
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`Counts 1 and 2 of Plaintiff’s Amended Consolidated Complaint allege violations of Section
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`10(b) of the Exchange Act. To state claims under Section 10(b), Plaintiff must allege “(1) a
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`material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the
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`misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the
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`misrepresentation or omission; (5) economic loss; and (6) loss causation.” Stoneridge Inv. Partners,
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`LLC v. Sci-Atlanta, 552 U.S. 148, 157 (208). “Rule 10b-5 encompasses only conduct already
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`prohibited by § 10(b).” Id.
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`1. Count 1
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`Defendants contend that Plaintiff fails to plead that any Defendant made a false or
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`misleading statement about Overstock’s historical insurance costs, the Dividend, or its Retail
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`Guidance or SEO results. The AC alleges nothing new regarding the insurance and dividend
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`statements. Because Plaintiff does not attempt to amend those allegations, and the court already
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`found them to be inadequate, those claims are dismissed.
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`As to Retail Guidance and SEO, Plaintiff asserts that:
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`•
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` In a May 9, 2019 shareholder letter, Byrne surprised investors by reporting good
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`news about Retail adjusted EBITDA guidance. He raised guidance from $10 million
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`to $15 million based on reduced expenses and increased search engine rankings
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`based on seven months of sequential improvements. On a shareholder call that same
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`day, Byrne stated that given “what’s going on in retail, I’ve changed my expectations
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`today . . . to expect this to go from $10 million to $15 million of operating – of
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`adjusted EBITDA.”
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`•
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`CW#0, who was involved in the Retail guidance planning process with the individual
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`Defendants, and CW#2, who was responsible for implementing search engine
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`improvements to the website, claim that the individual Defendants knew at that time
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`that Overstock would not obtain $15 million in retail adjusted EBITDA and that the
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`SEO improvement statements were illusory when made. According to CW#0, Byrne
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`intentionally ignored the realistic upside numbers that Iverson determined were
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`accurate and instead forced Overstock to use a higher upside number to land on the
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`$15 million retail adjusted EBITDA. Iverson allegedly knew that this upside number
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`and subsequent $15 million revenue guidance were “flat out wrong and misleading.”
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`However, Iverson stood by silently as Byrne presented to investors guidance numbers
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`premised on his higher projections. Iverson and Byrne then signed Overstock’s Form
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`10-Q that went out that day certifying that internal controls provided reasonable
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`assurance regarding the reliability of financial reporting. This falsely inflated
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`guidance was not removed from subsequent guidance announcements during the
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`Class Period.
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`•
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`On July 15, 2019, Overstock and Byrne issued a letter to shareholders announcing
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`another increase in retail adjusted EBITDA guidance, this time from $15 million to
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`$17.5 million. In the letter, Byrne also knowingly falsely claimed that the Retail
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`division’s contribution was covering its expenses, that the core earning power of the
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`retail business had snapped back more quickly than expected, and that retail’s
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`recovery in 2019 had exceeded expectations. Defendant Iverson knew that these
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`statements were false because it started from an improper baseline guidance.
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`•
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`On August 8, 2019, in a shareholder letter, Byrne reaffirmed the retail adjusted
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`EBITDA at $17.5 million, stated that the retail business had returned to positive
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`adjusted EBITDA for the first time since the second quarter of 2017, and claimed
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`that the company had experienced significant progress in SEO. During an earnings
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`call that same day, attended by Byrne, Iverson, and Nielsen, these false statements
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`were reiterated. According to CW#2, who was with the company through July 2019,
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`Defendants knew there was never a big improvement in SEO that could justify these
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`increases.
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`•
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`Approximately two weeks after the August 8 earnings call, CW#0 confirmed that a
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`revised revenue Outlook was presented to executive leadership that made clear that
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`the $17.5 million retail adjusted EBITDA would not be achieved. Nielsen knew that
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`even this report was overly optimistic. Nielsen had previously instructed the team
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`responsible for the report to “beat up the numbers” and find “wins.” Nielsen also
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`tried to pressure a group within the company to add $7 million to their projections.
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`Instead of disclosing the reality that the EBITDA projections could never be met,
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`Nielsen did nothing.
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`•
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`On August 22, 2019, in a letter filed with a Form 8-K and sent to investors, Byrne
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`falsely told investors that the retail business had recovered to a state of positive
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`adjusted EBITDA. On an earnings call the same day, Nielsen went further and
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`falsely reiterated that retail adjusted EBITDA was already positive and would hit
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`$17.5 million for the year. Byrne and Iverson participated in the earnings call.
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`Plaintiff alleges that these facts are sufficient to survive a motion to dismiss with respect to
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`its claims relating to Overstock’s Retail Guidance and SEO statements.
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`a. Retail Guidance
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`Defendants argue that the new allegations in the AC regarding Retail Guidance are
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`insufficient to plead a false or misleading statement under the heightened standards of the PSLRA.
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`Plaintiff must “specify each fraudulent statement, explain why the statement was misleading, and
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`allege with particularity [its] basis for believing that the statement was false.” Nakkhumpun v.
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`Taylor, 782 F.3d 1142, 1147 (10th Cir. 2015).
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`Plaintiff challenges the retail division EBITDA guidance Overstock provided on May 9, July
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`15, and August 8, 2019. Such guidance, however, is the quintessential example of a forward-
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`looking statement protected by the PSLRA’s safe harbor. Caprin v. Simon Transp. Servs., 112 F.
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`Supp. 2d 1251, 1257-58 (D. Utah 2000). To receive protection under the PSLRA’s safe harbor,
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`statements “must either (1) be identified as forward-looking and be accompanied by meaningful
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`cautionary language; (2) be immaterial; or (3) not be made with actual knowledge that the statement
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`was false or misleading.” In re Sun Healthcare Grp., Inc. Sec. Litig., 181 F. Supp. 2d 1283, 1288
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`(D.N.M. 2002).
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` The PSLRA safe harbor defines a “forward-looking statement” as “a projection of financial
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`items, a description of management’s plans and objectives for future operations or economic
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`performance, or the stated assumptions underlying these projections.” 15 U.S.C. § 78u-5(I). In the
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`AC, there are no new allegations to refute the fact that the Retail Guidance was identified as forward
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`looking, was accompanied by meaningful cautionary language, and the cautionary language referred
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`to the exact problems that ended up occurring. And in its briefing on this motion, Plaintiff does not
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`dispute that the guidance was forward-looking and accompanied by meaningful cautionary
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`language.
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`To claim that the Retail Guidance statements were misrepresentations, Plaintiff relies on
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`Case 2:19-cv-00709-DAK Document 137 Filed 09/20/21 PageID.3248 Page 15 of 32
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`allegations attributed to confidential witnesses and Overstock’s reversal of Retail Guidance in
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`September 2019. The “actual knowledge” standard for forward-looking statements is more exacting
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`than the scienter inquiry required for statements of past or present fact. In re Gold Res. Corp. Sec.
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`Litig., 957 F. Supp. 2d 1284, 1297-98 (D. Colo. 2013). Plaintiff cannot simply state that a
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`defendant was reckless. Id.
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`The AC adds allegations from a new confidential witness, CW#0, reflecting his belief that
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`Overstock’s retail guidance provided before the class period should have been at the lower end of
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`the projected range instead of the higher end of the range. CW#0 is described as “an executive
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`[who] participated in the 2019 planning process.” The AC provides no title, no dates of
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`employment, no job description, and nothing regarding the dates or manner in which CW#0
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`allegedly participated in the planning process. CW#0 claims that Byrne presented retail guidance on
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`March 18, 2019, two months before the class period, that Iverson believed was allegedly flat out
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`wrong and misleading. The AC, however, does not challenge the March 2019 guidance.
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` The new allegations attributed to CW#0 do not remove the retail guidance claim from the
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`protection of the PSLRA’s safe harbor provision. Nothing attributed to CW#0 suggests that any
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`Defendant gave guidance that he knew was impossible for Overstock to meet. The allegations show
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`a process to identify a range of future projections aided by external consultants from Bain &
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`Company. While there is no blanket immunization for reliance on outside consultants in
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`determining future projections, the allegations demonstrate that Overstock engaged in a process that
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`provided it with a potential range of projections. There is no reason to believe that every executive
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`at a company will agree with the range or where the company will fall within that range. Those
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`differences of opinion are inescapable when dealing with future projections. The fact that a single
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`unidentified “executive,” such as CW#0, apparently disagrees with the decisions reached by
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`Case 2:19-cv-00709-DAK Document 137 Filed 09/20/21 PageID.3249 Page 16 of 32
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`Defendants does not render Overstock’s publicly-disclosed guidance false or misleading. Moreover,
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`given the lack of allegations regarding his expertise in determining retail guidance, the allegations
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`attributed to CW#0 lack the specificity and other indicia of reliability that the law requires.
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`Even if the court were to credit CW#0's allegations, they fail to demonstrate that any
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`Defendant knew that the challenged guidance was unattainable. The allegations attributed to CW#0
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`are either irrelevant to the challenged guidance or merely another form of pleading fraud by
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`hindsight. The majority of the allegations attributed to CW#0 relate to the initial 2019 Retail
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`Guidance provided in March 2019, which Plaintiff does not allege was false or misleading and
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`which was provided two months before the class period. CW#0's opinions appear to be based on
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`the belief that Overstock considered a base plan between $145-$165 million, but did not select the
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`lower or more conservative end of that range. But, importantly, CW#0 does not dispute the range
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`and the figures Overstock chose were within the range. The AC alleges that the base plan for 2019,
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`which was established before the class period began and reflected a projected retail contribution of
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`$160 million, was unrealistic and misleading because it was not based at the lower, conservative end
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`of the $145-165 million range. Plaintiff has not cited any authority suggesting that it is fraudulent
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`for a company to set guidance at a particular point within a reasonable range of its own forecasts.
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`And the court is not aware of any requirement that a company must base its public guidance on the
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`lowest point within a reasonable range of its own internal forecasts. The fact that executives
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`disagree